As institutional investors become more interested in e-commerce distribution facilities, lenders are becoming more amenable to providing the financing to purchase them. And institutional interest in the sector is rapidly heating up, according to observations during the final panel of NAIOP’s inaugural E.CON e-commerce conference, “The Do’s and Don’ts of Investing in E-Commerce.”

“If you’re not buying e-commerce, you’re not in the real estate business right now,” noted Bo Mills, head of the western U.S. industrial capital markets for Jones Lang LaSalle Inc. “Everyone is so underweighted in industrial right now, and e-commerce has really driven the industrial boom,” so e-commerce buildings are trading more actively than traditional bulk distribution facilities right now, he said. And most of the big investors are pursuing them.

It helps that e-commerce is easy to understand, put in CBRE Inc. vice chairman & managing director Jack Fraker. After all, most people have made a purchase online and the growth of Internet purchases has been widely reported. The properties also offer institutional investors an opportunity to put out their necessary big blocks of cash, Mills added.

For investor USAA Real Estate, the top priorities are proximity to solid consumer markets; agility, or the flexibility to expand for peak-season employment; and environmental soundness of the property, since most of the future property buyers will be members of the environmentally sensitive Gen Y demographic group, listed executive managing director David Buck, who is in the process of expanding USAA e-commerce investment into Europe.

The company also likes bigger, taller, less dense properties with electrical and plumbing redundancies that make them more flexible should the tenant leave. Buck said he would also rather invest in the condition of the space relative to employee amenities rather than equipment or racking. Attracted to better credit tenants, which are more likely to stay, he also likes to see the tenant initially invest more in the building than USAA does, noting that some credit tenants draw on their own access to capital to put their own money into the deal.

Priorities are slightly different in Europe, though, Buck said, since properties tend to be smaller there and the materials used to construct so-called institutional-quality properties differ. Furthermore, labor laws in some countries can limit certain types of e-commerce (France, for instance, has banned the discounting of books to protect mom-and-pop bookstores). Nonetheless, Internet sales are growing rapidly overseas as they are in the U.S., with about 40 percent of lease activity in the European Union last year related to e-commerce, he estimated.

U.S. lenders continue to bring more traditional considerations to the negotiating table. Location is a big factor, with more recognizable locations—for instance, bigger cities or those more traditionally considered industrial centers—likely to attract better pricing among the lending community, according to Fraker. For instance, he suggested, Dallas or Los Angeles might net a cap rate in the mid-5s, whereas Nashville or Richmond might be priced in the 6 range.

That doesn’t mean the investor has to bypass a property in a lesser known but well-placed location, Fraker observed. If there’s a good story for the lender to bring to the boardroom when presenting the possibility, it may make them more amenable to financing the deal.